Thanks to the ECB’s Mario Draghi, Spanish billionaire Amancio Ortega Topples Bill Gates as Richest Man of the World

Bill Gates is out (for now).

Spanish Billionaire Zara owner Amancio Ortega has been crowned as Forbes’ richest man, writes the Business Insider:

It's Spanish clothing magnate Amancio Ortega, who has overtaken Microsoft founder Bill Gates for the first time ever.

According to Forbes' real-time tracker, the elusive multibillionaire founder of European clothing retailer Zara just smashed past Bill Gates to become the wealthiest person on the planet, with a fortune of $79.8 billion (€71.83 billion or £51.84 billion). 

The elusive Ortega isn't as much of a household name as Gates, but he's quietly ascended the wealth rankings in recent years, as his company continues to perform well and expand.

Unlike many of the richest people in the world, Ortega has a fascinating rags-to-riches story. Born in 1936 during the Spanish Civil War, Ortega's father earned 300 pesetas a month, a meager salary. 

Ortega's biographer described his memories of a childhood during which his family could not always afford enough food. He left school in his early teens, working his way up from the absolute bottom rung as a messenger boy in a shop.

It wasn't until he was 40 years old that Ortega got around to setting up Zara, the fast-fashion retailer that has gone from strength to strength — first growing in Spain, then neighbouring Portugal and France, then London. Now it's all over the globe.

According to Forbes, Ortega's wealth rose by 5.3%, another $4 billion, over the last 24 hours. That's partly down to a surge in Inditex shares, the parent company that owns Zara.

In the last 10 years, the market value of Inditex has risen by about 570%, the main driver of Ortega's climb up the ranks.

The punchline:

In an odd turn of events, Ortega has Mario Draghi to thank for his new rank — the head of the European Central Bank's hints that the ECB would boost its quantitative-easing programme on Thursday sent shares in the eurozone surging upwards.

Note: I modified the Inditex chart to show of the acceleration of the trend as the ECB's balance sheet swelled (lower box). Inditex traded mostly sideways when the ECB contracted her balance sheet in 2012. Revival of ECB's balance sheet expansion ballooned its gains!

Bill Gates needs to coax Ms. Yellen and team Fed to further ease for him to regain his lead!

Yet more evidence of how central banking's invisible redistribution policies work in favor of the elites, banks and the government at the cost of currency holders and general welfare.

How ex-Billionaire Eike Batista lost $25 billion in 18 Months

The consensus tends to shrug off the adverse impact of having too much debt. They never seem to realize that whatever illusions of prosperity brought about by having too much debt can be lost in a snap of finger.

Former Brazilian billionaire Eike Batista’s case, which I earlier raised, is a wonderful example of an individual’s boom-bust cycle.

Here is a snippet from CNBC-Reuters:

Since then, things have gotten worse for Batista. Hit by mounting debt, a series of project delays and a crisis of confidence, his six publicly listed companies have suffered one of the most spectacular corporate meltdowns in recent history.

The Brazilian billionaire, who dismissed his critics as he sold investors on the promise of OGX's oil discoveries, was also EBX's biggest investor. He pumped billions into the group's companies even as share prices plunged by as much as 90 percent.

His own fortune - the world's seventh-biggest last year, according to Forbes - has declined by more than $25 billion over the past 18 months.

OGX's failure - and the subsequent unraveling of EBX - reflects Batista's initial success in overselling investors on oil discoveries that proved to be more difficult to recover than they expected.

But the story is not so simple. His empire also fell victim to the sudden end of both the global commodities boom and a wild exuberance for emerging markets - two forces that attracted investors to Batista's vision.

Mr. Batista is now only worth $200 million from over $30 billion according to Celebritynetworth.com

Mr. Bastista is a high profile case, but there are other figurative riches to rags (lost billions) story  such as Zynga’s Mark Pincus Chesapeake Energy Aubrey McClendon and Softbank’s Masayoshi Son (Forbes)

The bottom line is that the fatal cocktail mix of overconfidence, aggressive expansion using debt and patent disregard of risks can lead to evaporation of one's wealth. Much of today's debt financed illusionary wealth will be unmasked once the interest rate environment radically shifts.

 

How Leverage Affected Brazilian Billionaire Eike Batista’s Fortunes

Here is a wonderful example of how leverage causes boom bust episodes even from an individual level.

Take it from Brazil’s billionaire Eike Batista

From Forbes,

Last year, Brazilian entrepreneur Eike Batista was the world’s 7th richest man, with a net worth of $30 billion. Batista, riding high on oil fever, even stated, “I will be the world’s richest man,” vowing to overtake Carlos Slim of Mexico, the world’s richest individual.

This year Batista is ranked No. 100, worth just $10.6 billion. His fortune is down an astonishing $19.4 billion, or 65%, making him the year’s biggest loser. Batista has been drifting further and further away from the top of the list. Now he is not even one of the top three richest Brazilians.

How leverage has translated to boom and the quasi bust for Mr. Batista

From the Bloomberg,

Eike Batista, the Brazilian billionaire whose oil-company shares fell to a record low last week, is close to selling a stake in MPX Energia SA (MPXE3) as he faces demands from creditors to boost collateral, people with direct knowledge of the matter said.

Among Batista’s biggest creditors is Sao Paulo-based Itau Unibanco Holding SA, with about 5.5 billion reais ($2.8 billion) in loans outstanding, said two of the people, who asked not to be identified because the matter is private. Batista borrowed about 4.8 billion reais from Banco Bradesco SA and 1.6 billion reais from Grupo BTG Pactual, not counting a credit line of $1 billion BTG provided earlier this month, the people said.

Batista, 56, used shares of his publicly traded companies as collateral for loans that helped build his empire of commodities and energy businesses, held as units of his EBX Group Co., the people said. Shares of his oil and gas company, OGX Petroleo e Gas Participacoes SA (OGXP3), plunged about 85 percent in the past year, and Batista is trying to reduce collateral requirements by selling assets to pay debt, the people said.

At least Mr. Batista still remains a billionaire but appears to be losing his fortune rapidly.

The lesson is that all leverage has a tipping point.

And when number of people suffering from the same malady rises, financial problems transits from the periphery to the core, then the crisis.

World’s Richest Green Political Entrepreneurs

Kerry Dolan of Forbes magazine lists the world’s richest green billionaires

Ms. Dolan writes,

Being green and making money don’t always go hand in hand, but these 10 billionaires have tapped global demand for solar and wind power and gotten very rich from it. To make this list, billionaires were measured on the size of their “green” net worth – for the most part, the value of a stake in a publicly traded wind or solar company (two of the 10 have private holdings; I consulted others to come up with an estimate of those values). The four Chinese billionaires in the top ten illustrate that China really has become the hot spot for solar and wind manufacturing. The added boost came from a booming IPO market in the country over the past year.

It’s true being green and making money don’t always go hand in hand, that’s because being green is more about financial benefits brought by political privileges more than about satisfying consumers.

For instance this article from Washington Post says (bold highlights mine)

A 2008 Citigroup analysis found that about one-third of China’s wind power assets were not in use. Many turbines are not connected to the transmission grid. Chinese power companies built wind turbines that they didn’t use as the cheapest way of satisfying — on paper — government requirements to boost renewable energy capacity.

and...

China indeed invests more than any other nation in environmentally friendly energy production: $34 billion in 2009, or twice as much as the United States. Almost all of its investment, however, is spent producing green energy for Western nations that pay heavy subsidies for consumers to use solar panels and wind turbines.

Bottom line: green energy mostly represents political entrepreneurship (euphemism for crony capitalism).

Forbes’ Philippines 40 Wealthiest

Here is the updated list of the Philippines’ who’s who or the wealthiest 40 from Forbes.

Click here for a crispier image

While attaining wealth by providing consumers their invaluable goods and services is the most admirable trait of successful entrepreneurs, in the Philippine setting, some may have achieved their lofty status from political entrepreneurship or obtaining economic privileges from political concessions.

They are what author Joe Studwell calls as the Asian Godfathers who are “highly effective traders in rent-offering environment.”